Our Tax Manager Diane Aldridge shares the key personal tax planning points to consider before the end of this tax year.
1. Have you paid your 2020-21 tax?
If you are yet to make payment in full, make sure you do so by 1 April 2022. You’ll not get a late payment penalty if you pay your tax in full or enter into a payment plan by this date.
2. Can you make a gift donation to charity?
Donations by individuals to charity are tax-free.
Do this via the Gift Aid scheme and the charity can claim an extra 25p for every £1 you give, without it costing you more. Tax-free gifts amounts are uncapped.
If you are a higher rate taxpayer, you can claim extra tax relief of 20% on the gross value of the gift. Additional rate taxpayers can claim an extra 25%.
Note: if you do not pay income tax you should not claim Gift Aid on charitable donations.
3. Does your income fall just above your tax threshold?
Current tax rates for basic rate, higher rate and additional rate taxpayers can be found here.
If your income falls just above a threshold, you can take action to reduce your taxable income and save tax by making charitable donations or pension contributions*.
4. Have you considered the increase in dividend rate bands that are due to be introduced on 6 April?
There will be a dividend tax rates increase on 6 April 2022 so you may wish to consider bringing dividend payments forward. Note: plan this carefully as it will also bring forward the tax payments you will be due to make.
5. Have you used your Capital Gains tax-free allowance?
You attract capital gains tax (CGT) on the profit you make when you dispose of an asset that’s increased in value.
Your capital gains tax-free allowance is currently £12,300. This allowance cannot be carried forward, so if you are planning to dispose of an asset, make sure you do so by 5 April 2022 to use this year’s allowance.
Bear in mind you can transfer assets to your spouse/civil partner before the sale of the asset, to take advantage of their allowance.
6. Are you making the most of your Inheritance Tax Planning opportunities?
Gifting your assets in your lifetime can minimise the IHT your loved ones are liable to pay on your death.
Remember to consider how gifting assets may give rise to CGT and impact your lifestyle.
There are a number of additional IHT reliefs, including:
- An annual gifts exemption of £3,000
- A small gifts allowance of £250 per person per tax year
- An annual gifts for weddings/civil partnership allowance
7. Can you make a tax-free private pension contribution?*
Your private pension contributions are tax-free up to certain limits.
If you are a higher rate or additional rate taxpayer, you can make an additional contribution to your pension scheme before 5 April and gain 40% or 45% tax relief on your contribution, respectively.
Your tax-free allowance can be carried forward for three tax years, so be sure to make use of any unused allowance you may have for the 2018/19 tax year before 5 April.
You can also make contributions of up to £2,880 net (£3,600 gross) to a pension scheme for a spouse, civil partner or child if they have no income. You will get basic rate tax relief on the contribution.
8. Have you used your personal ISA allowance?
Make sure you have utilised your tax-free ISA allowance for 2021/22. You can also consider contributing to a junior ISA for your children before 5 April.
9. Have you made the most of other tax-efficient company investment schemes?
You can secure tax relief on investments made in qualifying trading companies under a number of schemes. These include the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS). Capital gains on EIS and SEIS shares are not subject to CGT after three years.
You can also get 30% tax relief on investments in qualifying social enterprises, under the Social Investment Tax Relief Scheme. Capital gains on such investments are free of CGT.
Always get appropriate advice to be sure you meet the relevant conditions to secure the above tax reliefs on your investments.
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